New Zealand must mix two vital ingredients for future

By ROD ORAM

Some countries never get rich. Lucky ones get rich once but then they run down their savings as they slowly decline. A few very astute ones regenerate themselves, building on their wealth and skills.

Being rich means much more than just money. It means quality of life and equality of opportunity. It means dynamic societies and economies which offer good education, healthcare and housing, justice, effective political systems, vibrant arts, a high quality of natural environment and a host of other measures of a successful society.

New Zealand got lucky once. At the beginning of the last century a combination of factors came together to make this a very prosperous land, at least for many people.

Harnessing fertile land and local enterprise to modern technology, foreign capital and management skills created meat, wool and dairy industries that earned New Zealand a very good living. Our frozen meat and dried milk were prized products in the northern hemisphere for which consumers paid a premium, as a companion article describes on page 43 of today's special section, "2000 Celebrating a Century".

It was a classic way to get rich, one that other countries have used with variations. Japan after World War Two, for example, substituted labour for land in its mix. Perhaps this combination of natural advantage, capital and expertise is the only way to get rich short of conquest.

And it worked well for New Zealand for half a century. Our fortunes were at their height when commodity prices peaked during the Korean War. But it has been downhill ever since. Our economic wealth, measured as gross national product per capita, has fallen some 65 per cent compared with the United States' in the last 30 years and somewhat less against Europe's.

Regardless of which economic or political system we have tried, the decline has gone on. Each attempted remedy - Muldoon's isolated island economy or Rogernomics' free markets being the main two - have reversed the downtrend in their early days but exacerbated it in their later stages.

What's wrong? Can we fix it? The best explanation of the decline lies in the story of dried milk and Glaxo. As the Millennium article describes, it was a combination of Joseph Nathan's vision, US technology and British marketing skills that gave rise to Glaxo.

In 1904, the Nathan family started drying milk in Bunnythorpe outside Palmerston North and selling it under the Glaxo name in Britain.

But even from the outset, Glaxo and New Zealand began to part company. It was Glaxo in Britain that created the real value off the back of Bunnythorpe's milk. By the First World War it had a powerful brand. In the 1920s it began using its food technology to make pharmaceuticals. Today, Glaxo Wellcome, British-based, is one of the world's largest pharmaceutical companies with not a drop of milk in its product range. Its sales of more than sterling 8 billion ($25 billion) are five times the size of the exports of the entire New Zealand dairy industry - which remains a big seller of dried milk.

Glaxo has created prodigious wealth. When Rosa Hargreaves died last July aged 89, in a council house in northern England, her neighbours were astounded to discover she had left Glaxo shares worth sterling 6.5 million to her son. That equates to $20 million, enough to have made her heir a wealthy New Zealander.

Mrs Hargreaves had her husband, a tailor, and Glaxo to thank for her good fortune. He had bought sterling 1400 of Glaxo shares in 1952 and sat on them. Over the next 47 years their value rose more than 4600 times. Compare that with the abysmal stock market performance of our listed companies Brian Gaynor analyses on page A23.

"Don't sell Glaxo" were the dying words of the father in an Anita Brookner novel, as he struggled to offer his daughter the accumulated wisdom of a lifetime.

New Zealand's trouble is we never "bought Glaxo" in the first place - not in the sense of acquiring the company but in the sense of embracing the business model. It's making pharmaceuticals; we're still drying milk, shearing sheep and felling trees.

Can we change? Can we luck into a second golden era? We have the potential to do so. The only question is whether we have the desire.

The ingredients of our first golden age are as valid today as they were then: land abundant, fertile and largely unspoilt; local enterprise; and access to foreign capital and skills.

But we need to apply them in radically different ways to build on our existing base. With the application of science, all our agricultural output can be developed into much higher-value products. Mapping the genes of radiata pine trees, for example, is beginning to unlock some secrets of our abundant resource. Milk, too, is a highly complex natural product, one from which a host of pharmaceuticals and nutraceuticals (foods with therapeutic benefits) can be made.

New Zealand industry has barely begun, though, to put in place the science, capital, production capability and marketing expertise to exploit those natural advantages. Once again, foreign capital and expertise will be necessary - but this time New Zealand needs to retain some ownership of the economic activity and intellectual property generated or we will repeat the Glaxo lesson.

Yet all that is only part of our prosperous future. New Zealand is an oasis in an increasingly crowded and polluted planet. The world's population is forecast to grow from 6 billion to 9 billion over the next 50 years with rising living standards putting even more pressure on the environment.

That doesn't mean we need to confine ourselves to being the organic food, eco-tourist capital of the southern hemisphere - as desirable as those goals are.

Global growth, coupled with the radically changing nature of technology, economies and business, mean many other opportunities beckon. Yes, mega-scale counts more than ever in global business. But small-scale enterprise is increasingly coming into its own as technology allows such companies to reach out to the world. Moreover, large corporations are increasingly turning to small and creative businesses to provide them with the innovation they find so hard to generate themselves.

In theory, New Zealand business is ideally placed for these trends. Some 95 per cent of Kiwi companies employ 25 or fewer people. Already a host of small and medium-sized companies are selling high quality, high value manufactured products to the world: Macpac (outdoor recreation clothing and equipment), Ashton Group (packaging equipment), NDA Engineering (stainless steel fabrication), Snowy Peak (clothing) and Greens Industries (kitchen and bathroom taps) were just five featured in the Business Herald special report on manufacturing last year or the Asia Crisis report the year before.

But to make real this vision of New Zealand's economic future, the country needs to put in place two major ingredients, broadly speaking. The first is an entrepreneurial culture with all the support systems that entails from venture capital and skills training to robust and effective infrastructure, particularly in telecommunications and transport. Economic reforms of the past 15 years started to put those in place but there's much more work to be done.

The second ingredient is actually a far bigger challenge to the nation. New Zealand has to be itself - not an imperfect replica of Silicon Valley, or Ireland, or Finland or any other country or system. It must draw on all strands of its cultures, its races, its history, its physical presence to express its qualities to the world.

Out of that will spring true innovation. In a world where one corner or product or experience looks increasingly like another, being uniquely New Zealand will be much prized.